Wine Industry in Hong Kong
04 September 2017
- Hong Kong's wine industry is supported by a significant pool of experienced fine wine merchants with good wine knowledge and international wine trade experience. Besides wine trading and distribution, wine-related business includes auction, retailing, warehousing, catering and transportation.
- Since the removal of all duty-related customs and administrative controls in February 2008, Hong Kong has further developed into a wine trading and distribution centre for the region, particularly for the Chinese mainland.
- Hong Kong has entered into an agreement with the mainland Chinese Government, allowing wine imports to go into China under CEPA and enhanced customs facilitation measures.
Hong Kong has a significant pool of experienced fine wine merchants with good wine knowledge and international wine trade experience. Amid the growing demand for wine in Asia, the Hong Kong government removed all duty-related customs and administrative controls for wine in February 2008 to facilitate the development of Hong Kong as a wine trading and distribution centre for the region, particularly the Chinese mainland. Besides wine trading and distribution, wine-related business includes auction, retailing, warehousing, catering and transportation.
Following the deregulation, development of the wine industry has accelerated. Wine imports surged some 80% in the first year. According to an ad hoc survey carried out by the Commerce and Economic Development Bureau to evaluate the economic benefits of wine duty exemption, about 850 new wine-related companies were set up in Hong Kong in 2008 and 2009, bringing the total to 3,550; the wine sector as a whole gained HK$5.5 billion worth of wine-related business receipts in 2009, representing an increase of over 30% as compared with 2007; and the number of employees engaged in wine-related business increased by more than 5,000 as compared with 2007, reaching 40,000 by the end of 2009. This increase in employment was equivalent to about 1,000 full time jobs, 60% of which were for front-line staff; and the number of wine-related manpower and professional courses (including sommelier training as well as wine business/management courses) grew from 21 in 2007 to 86 in 2009. The number of participants in these courses reached over 8,500 in 2009, representing an increase of more than two times as compared with about 2,400 participants in 2007.
Hong Kong has entered into an agreement with the mainland Chinese Government, allowing wine imports to go into China under CEPA and enhanced customs facilitation measures. This makes the city an unrivalled gateway to China, attracting industry players from around the world to launch or expand their business in Hong Kong. Hong Kong, being a duty-free port with good air connectivity and storage facilities, is regarded by Asian investors as the most cost-effective and convenient distribution hub to store their investment-grade wines for delivery to their markets on-demand.
Performance of Hong Kong's Wine Trade 
Since the weather in Hong Kong is not suitable for growing grapes, there is only very little wine production in Hong Kong, and therefore insignificant domestic exports. Virtually all exports are re-exports of imported wines with Asia being the major market. Chinese mainland and Macau, taking up more than 91% of the total in the first half of 2017, are the major wine exporting destinations of Hong Kong. In January-June 2017, total exports of wine saw a sharp decline of 24%, after a 9% growth last year.
On the other hand, Hong Kong’s wine imports have expanded fast since the elimination of import duties in February 2008. In January-June 2017, imports of wine amounted to HK$5.7 billion, more than three times of the value of HK$1.6 billion in 2007. Most of the imported wines originated from European countries such as France and the United Kingdom, but there has also been a significant share coming from Australia in recent years. In the first half of 2017, the value of wine imports decreased by 9%, led by those originated from France (-13%) and the United Kingdom (-11%).
In volume terms, Hong Kong imported 30.3 million litres of wine in the first half of 2017, with about 43% of these imported wines being re-exported. The rest – about 57% – of wine imports were brought away from Hong Kong by individuals or retained in Hong Kong, for storage or immediate consumption.
To facilitate Hong Kong as a trading and distribution hub for the region, the Hong Kong government has signed co-operation agreements with Australia, Chile, France (and its Bordeaux and Burgundy regions), Germany, Hungary, Italy, New Zealand, Portugal, Romania, Spain and the United States (and its Oregon and Washington states) to strengthen promotional activities in areas including wine-related trade, investment and tourism. Various wine promotional activities, including seminars, wine tastings, receptions and food pairings, also take place in Hong Kong. In particular, trade fairs in Hong Kong provide good business matching opportunities, support new wines and labels launches, and facilitate market testing on Asian Palette. Below is a list of selected trade fairs in the industry.
High-value, investment grade wines are usually sold through auctions organised by global auction houses including Acker Merrall & Condit, Sotheby’s, Christie's and Zachys. Thanks to the surge in demand from Asian investors, Hong Kong has maintained one of the largest wine auction centres in the world since 2009, with auction sales amounting to US$92 million in 2016, according to Wine Spectator.
Domestically, wines are sold through off-trade channels such as supermarkets, specialty stores and convenience stores, and on-trade channels such as bars, restaurants and club houses. According to Euromonitor International, wine sales in Hong Kong amounted to US$1,543 million or 33.8 million liters in 2016, up 6.5% and 3.1%, respectively, per annum in the past five years. For 2016 to 2021, it is forecast to grow 9.8% per annum in value terms and 5.4% per annum in volume terms. Off-trade channels account for approximately 24% of total wine sales in value terms and 39% in volume terms in 2016.
While wine consumption is flat or sinking across much of Europe, the global attention has shifted to Asia. Consumers in Asia are increasingly wine savvy and their demand for wine remains strong. According to Euromonitor International, wine sales in Asia amounted to US$93.3 billion or 6.1 billion litres in 2016, up 2.3% and 2.3%, respectively, per annum in the past five years. For 2016 to 2021, it is forecast to grow 8.5% per annum in value terms and 3.9% per annum in volume terms. Sales in China are more spectacular, with an amount of US$66.5 billion or 4.6 billion litres in 2016, up 4.7% and 3.5%, respectively, per annum in the past five years. For 2016 to 2021, it is forecast to grow 10.4% per annum in value terms and 5.0% per annum in volume terms.
Due to the growing demand for wine in Asia and the deregulation of wine imports, wine business has boomed in Hong Kong. Besides new entries, increasingly, international wine companies and their specialists have moved to Hong Kong. For example, Robert Sleigh, senior director and head of Sotheby's wine department in Asia, has been relocated to Hong Kong from New York since September 2010. Also, after six years in Singapore, the Regional Council of Burgundy has moved its only office in Asia to Hong Kong. On the other hand, while Hong Kong is well recognised as the culinary centre in the region, wine matching with Asian cuisine becomes a trend in the form of food and wine appreciation sessions held by restaurants and hotels. There is also a food matching competition adjudicated by Asian experts in the HKTDC Hong Kong International Wine and Spirits Fair.
Responding to rising demand and driven by market forces, public as well as private training institutions are enriching or expanding their wine appreciation courses and developing enhanced manpower training programmes. For instance, the Vocational Training Council (VTC) offers trainings to personnel ranging from sommeliers to frontline catering staff, and provide training on food and wine pairing, wine appreciation and other wine-related matters through the International Culinary Institute, its member institute. Meanwhile, the School of Professional and Continuing Education of the University of Hong Kong has partnered with a French institution to launch the first Master of Business Administration’s programme in Hong Kong on wine.
To support on-demand delivery to Asian market, storage facilities are necessary and being built and converted in Hong Kong. With the assistance of the government, the industry and the Hong Kong Quality Assurance Agency launched the Wine Storage Management Systems Certification Scheme, the first of its kind in the world. The Scheme has been enthusiastically supported by the industry, with a total of 66 fine and commercial wine storage facilities, wine storage facilities in wine retailers and/or wine transportation service providers accredited as of November 2016.
Under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), the mainland has given all products of Hong Kong origin, including wine, tariff-free treatment starting from 1 January 2006. According to the stipulated procedures, products which have no existing CEPA rules of origin can enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met. Non-Hong Kong made wine is subject to tariff rates of up to 20% when entering the mainland.
Generally speaking, for wine of fresh grapes, fermentation and production, identified as the principal process for the purpose of delineating their origin, is required to be carried out in Hong Kong. Detailed information is available here.
General Trade Measures Affecting Wine Exports
The Chinese mainland is the biggest export market for Hong Kong. It imposes the following taxes on wine: import tariff (14% for bottled wine and 20% of bulk wine), value added tax (17%) and consumption tax (10%), which results in an effective tax rate as high as about 48-56%. The two most critical pieces of legislation concerning wine imports are the wine standards and the wine labelling law, both of which are administered by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ). Some standards that apply to wine are “Standards for the Administration of Wholesaling of Alcoholic Products”, “Standards for Administration of Retailing of Alcoholic Products”, “Measures for the Administration of Wine Distribution” and “Hygiene Standards of Distilled and Brewed Wine”. However, these standards do not necessarily correspond with international standards.
Labelling verification must be sought from AQSIQ, a process which takes one to two weeks. All information labelled in English must also be equally given in Chinese and in the same size font. All labels must be permanently attached to the bottles. Separately, the port requires a 24-hour notice prior to shipment arrival. According to customs inspection regulations, samples will be selected randomly and proportionately. Less than 1,500 ml will be sampled if the bottles contain less than 500 ml. There is currently no wine classification or grading system in China.
To facilitate the movement of wine imports into the Chinese mainland through Hong Kong, the Customs and Excise Department (C&ED) of Hong Kong and the General Administration of Customs of the Chinese mainland signed on 9 February 2010 the "Co-operation Arrangement on Customs Facilitation Measures for Wine Entering the Mainland through Hong Kong". The agreement applies to wine which is imported through designated ports into the Chinese mainland, exported by Hong Kong registered wine exporters and imported by mainland registered wine importers. The measures include pre-valuation of duty whilst the wines are in Hong Kong and compression of clearance time at mainland ports. The agreement now applies to all ports in Beijing, Tianjin, Shanghai, Guangzhou and Shenzhen. On 18 September 2014, the two Customs administrations signed a supplement to the Arrangement to enhance the facilitation measures. The supplement waived the requirement that wine consignments from Hong Kong have to be received by the Mainland Registered Wine Importers, and mandated the use of a newly developed web-based system for declaration of wine consignment information to the mainland customs. More information can be found here.
C&ED has stepped up efforts to tackle counterfeit wine, which include establishing a dedicated investigation team; forming an alliance with the industry to strengthen co-operation in intelligence collection and enhance their capacity in monitoring market activities; setting up a specialist team under the alliance, drawing in experts to assist in enforcement against counterfeit wine; as well as establishing a liaison network with overseas and Chinese mainland enforcement agencies to enhance its capability in intercepting suspected counterfeit wine and verify wine authenticity.
New world wines are gaining market share
Old World wines, which refer to those produced in continental Western Europe including France, Italy, Portugal and Germany, dominate the Asian market. However, New World wines producing in the US, Latin America, Australia, New Zealand, South Africa, etc are gaining popularity. More user-friendly to beginners, new world wines are usually labelled in English with greater emphasis on their primary grape variety. On the other hand, Old World wine labels are more difficult to read. Most European wines are labelled under the geographic appellation (the region which the grapes are grown) rather than their grape variety which assumes the consumers are familiar with the producer regions. In addition, wines coming from countries such as Australia are nearer to Asian countries, and thus incur lower transportation costs.
More “laymen” labelling and bottle closures
Wines were traditionally selected from a wine menu or list without the customers ever seeing the bottle. Amid the rise of off-trade channels, wine packaging, in terms of label design and bottle closure, becomes more important. Now, wine labels show more information such as the vintage, the variety and the country of origin. Label designs are increasingly eye-catching and easy to recognise as brands can play a big part in wine selection. For example, Australia’s Yellow Tail whose distinctive orange kangaroo logo has helped the brand sell more than 25 million cases in five years. To make it more user friendly, screw caps, crown seals, synthetic corks are increasingly used as alternatives to traditional corks as bottle closures.
Targeting the entry-level tasters
According to Euromonitor International, there are more products which target entry-level tasters and people new to wine consumption launched in recent years. Examples include Ruffino Lbaio Chardonnay by Ruffino SRL, and Barefoot White Zinfandel by Barefoot Cellars. Another company, Te Hana, also launched Te Hana Rose Cuvee, a low-price Champagne available in PARKnSHOP targeting low- to middle-income consumers.
Wine packaged in smaller bottles
Some wine retailers packaged the same wines in large and small bottles. The idea is to allow consumers to replicate a winery tasting room in the comfort of their own homes, trying a taste of top-notch wines before committing to buying full-sized 750 ml bottles.
Companies introduce wines to be paired with certain foods
An increasing number of consumers have started to develop a more sophisticated palette, and are hence consuming more wine. According to Euromonitor International, regional companies have started to launch their products in a bid to appeal to the local palette. These include Chateau Tour Sieujean by Jointek Fine Wines for matching roast pig and steak. On the other hand, St. Émilion Grand Cru has launched the Chateau Haute Nauve 2006, which is targeted to match roasted lamb and duck.
 Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.
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